A tech-heavy portfolio with strong historic performance but low diversification and high correlation

Report created on Jan 6, 2025

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio is primarily composed of ETFs, with a significant allocation to the Vanguard S&P 500 ETF and the Vanguard Information Technology Index Fund ETF Shares. Together, these two positions account for over 64% of the portfolio. The remainder is spread across a mix of other ETFs and funds, with smaller allocations to money market funds. This composition indicates a strong focus on equities, particularly in the technology sector, which may offer growth but limits diversification. Consider diversifying by adding other asset types to balance risk and return.

Growth Info

Historically, the portfolio has shown an impressive CAGR of 14.1%, outperforming many benchmarks. However, it also experienced a maximum drawdown of -25.66%, indicating vulnerability during market downturns. The high returns suggest a strong growth focus, but the drawdown highlights potential risks. Despite the high returns, relying on past performance can be misleading, as it doesn't guarantee future results. To mitigate risk, consider strategies that protect against significant losses, such as diversification or using hedging instruments.

Projection Info

The Monte Carlo simulation, which projects future outcomes based on historical data, shows a wide range of potential returns. With 1,000 simulations, the median outcome is a 549.24% increase, but the 5th percentile shows a 19.19% gain, indicating potential downside risks. While these simulations provide insight into possible outcomes, they rely on historical data, which may not predict future market conditions. It's crucial to prepare for different scenarios, including less favorable ones. Regularly review the portfolio to ensure it aligns with changing market trends and personal goals.

Asset classes Info

  • Stocks
    74%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, with over 74% allocated to this asset class. Cash and bonds make up a negligible portion, which may limit the portfolio's ability to withstand market volatility. A more balanced allocation across asset classes could enhance diversification and reduce risk. Consider increasing exposure to bonds or other fixed-income securities to provide stability and income, especially during market downturns. This strategy can help smooth returns over time and align with a balanced risk profile.

Sectors Info

  • Technology
    46%
  • Financials
    5%
  • Consumer Discretionary
    5%
  • Health Care
    5%
  • Telecommunications
    4%
  • Industrials
    3%
  • Consumer Staples
    2%
  • Energy
    1%
  • Utilities
    1%
  • Real Estate
    1%
  • Basic Materials
    1%

With 46% of the portfolio in the technology sector, there is a significant concentration risk. This tech-heavy allocation may lead to higher volatility, especially during periods of regulatory changes or interest rate hikes. While technology has been a strong performer, overexposure can amplify risks. To mitigate this, consider diversifying into other sectors, such as healthcare or consumer goods, which can provide stability and reduce reliance on a single sector's performance. This approach can help achieve a more balanced risk-return profile.

Regions Info

  • North America
    74%

The portfolio is predominantly concentrated in North America, with over 74% exposure. This regional focus limits diversification and may increase vulnerability to local economic conditions. Expanding geographic exposure can enhance diversification and capture growth opportunities in other regions. Consider adding assets from Europe, Asia, or emerging markets to balance the portfolio's geographic risk. This strategy can provide access to different economic cycles and reduce the impact of regional downturns on the overall portfolio performance.

Redundant positions Info

  • Invesco QQQ Trust
    ProShares UltraPro QQQ
    Vanguard Russell 1000 Growth Index Fund ETF Shares
    Invesco NASDAQ 100 ETF
    T. Rowe Price Blue Chip Growth ETF
    Vanguard Information Technology Index Fund ETF Shares
    Fidelity® Blue Chip Growth ETF
    High correlation
  • Vanguard Total Stock Market Index Fund ETF Shares
    SPDR S&P 500 ETF Trust
    Vanguard S&P 500 ETF
    High correlation
  • BlackRock Liquidity Funds - Treasury Trust Fund
    Vanguard Treasury Money Market Fund
    High correlation

High correlation among several assets in the portfolio suggests limited diversification benefits. Assets like the Invesco QQQ Trust and ProShares UltraPro QQQ have moved similarly, reducing the portfolio's ability to mitigate risk through diversification. To enhance diversification, consider replacing some of these highly correlated assets with others that have a lower correlation. This can help stabilize returns and reduce the impact of market volatility on the portfolio. Diversification across asset classes and sectors can also improve risk management.

Risk vs. return

This chart shows the Efficient Frontier, calculated using your current assets with different allocation combinations. It highlights the best balance between risk and return based on historical data. "Efficient" portfolios maximize returns for a given risk or minimize risk for a given return. Portfolios below the curve are less efficient. This is informational and not a recommendation to buy or sell any assets.

Click on the colored dots to explore allocations.

The portfolio could benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. However, before optimizing, it's essential to address the high correlation and concentration issues. By reducing overlap and diversifying across sectors and regions, the portfolio can be better positioned for optimization. This process involves reallocating existing assets to enhance efficiency, not necessarily adding new ones. An optimized portfolio can offer improved returns for a given level of risk, aligning with the investor's goals and risk tolerance.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • SPDR S&P 500 ETF Trust 0.90%
  • ProShares UltraPro QQQ 1.20%
  • BlackRock Liquidity Funds - Treasury Trust Fund 4.70%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Treasury Money Market Fund 4.40%
  • Weighted yield (per year) 1.77%

The portfolio's total dividend yield is 1.77%, with the highest contributions from money market funds. While dividends provide a steady income stream, the overall yield is relatively low, given the portfolio's composition. For investors seeking income, consider increasing exposure to high-dividend-paying stocks or funds. This can enhance cash flow and provide a buffer during market downturns. However, ensure that any changes align with overall investment goals and risk tolerance. Balancing growth and income can optimize the portfolio for long-term success.

Ongoing product costs Info

  • Fidelity® Blue Chip Growth ETF 0.59%
  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • SPDR S&P 500 ETF Trust 0.10%
  • T. Rowe Price Blue Chip Growth ETF 0.57%
  • ProShares UltraPro QQQ 0.88%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Treasury Money Market Fund 0.08%
  • Weighted costs total (per year) 0.10%

The portfolio's total expense ratio (TER) is 0.1%, which is impressively low. This cost efficiency supports better long-term performance by minimizing the drag on returns. However, some individual assets, like the ProShares UltraPro QQQ, have higher fees. Consider evaluating whether lower-cost alternatives could replace these high-fee assets without sacrificing performance. Reducing costs can significantly enhance compounding returns over time. Maintaining a low-cost structure is a positive aspect of the portfolio, contributing to its overall efficiency and return potential.

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